We're still going for gold
Forget the dollar, euro or Kenyan shilling, with the financial system still in more trouble than its leaders will admit, and much of the world on the verge of recession, gold is about the only real portfolio insurance there is.
One of my between-jobs, hedge-fund-manager friends is just off for a week or two lounging around in Kenya. I asked him what currency he was taking with him. His answer? He had been planning to take a wallet full of dollars, just as he usually does when he goes off to what he considers to be the third world. Then he asked the friends he is staying with for their view. Get Kenyan shillings, they said. Shopkeepers, taxi drivers and bar owners won't take dollars, pounds or even euros any more: they are all considered to be both "too weak and too volatile". How's that for a sign of the times? We'd prefer shillings, too. But over even these we'd still prefer gold.
At MoneyWeek, we're with Nairobi's shopkeepers. Six weeks ago we ran a cover predicting that the grossly overvalued pound would soon tank. It has. We also suggested that you might buy dollars instead. That would have been a good move the pound is now at a 22-month low against the dollar. But while we are pleased that some readers will have made a short-term gain on the US currency, I'm not sure we'd want to hold it over the medium term any more than we'd want to hold sterling. Both countries are a mess. Both have whopping trade deficits, rising unemployment, unclear inflation futures, and free-falling house prices.
This means more people will default on more debts, that repossessions will keep rising and that last week's sale of a Detroit house for $1 is the beginning not the end of a trend (see Want to become Paris Hilton's best friend? Apply here). The eurozone is no better a prospect (see A darkening outlook for European stocks). So why hold the dollar, the pound or the euro? We'd prefer shillings, too. But over even these we'd still prefer gold. We look at why in Why sterling is going 'to hell in a handbag', but the basic point is that with the financial system still in much more trouble than its leaders will admit and much of the world on the verge of recession (be it inflationary or deflationary), gold is about the only real portfolio insurance there is.
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That might be something for still-employed hedge-fund managers to consider - they're having a horrible summer. The SRMGlobal Master Fund run by Jon Wood is said, by The Wall Street Journal, to have lost over 80% of its value since inception in 2006 and 77% in the last year. That must be irritating for the many investors who gave him their money (the fund initially raised $3bn). But not perhaps as irritating as the fact that lock-ups mean they can't even get the pennies out that might be left. Still, Wood isn't the only one having trouble with today's markets. According to The Times, the HFRX index of hedge-fund returns was down 2.82% in July and has lost 1.59% so far this month.
Markets are tough right now I certainly wouldn't be wanting to be under pressure to make money, nor would I take kindly to being criticised for failing. But then I'm not a hedge-fund manager I haven't told my clients I will make them absolute returns regardless of market conditions. And I'm not charging them an arm and a leg for not doing so.
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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